United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 96-2985

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Milton Hambrice, Inc., *

*

Plaintiff/Appellee, *

* Appeal from the United States

v. * District Court for the 

* Western District of Arkansas.

State Farm Fire & Casualty *

Company, *

*

Defendant/Appellant. *

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 Submitted: April 14, 1997

 Filed: May 23, 1997

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Before RICHARD S. ARNOLD, Chief Judge, FAGG and MURPHY, Circuit Judges.

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MURPHY, Circuit Judge.

State Farm Fire and Casualty Company (State Farm) appeals from a

judgment awarding Milton Hambrice, Inc. compensatory and punitive damages

for a claim of malicious prosecution. Hambrice, a contractor on a

restaurant remodeling project, was sued by State Farm in a subrogation

action after a fire extensively damaged the restaurant during the

remodeling. After State Farm later voluntarily dismissed its action,

Hambrice brought this case. A jury returned a verdict for Hambrice,

awarding it $312,000 in compensatory damages and $7,500,000 in punitive

damages. The district court denied State Farm’s post-trial motions, and

judgment was entered in the amount of the verdict. We reverse and remand.
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In the summer of 1991 Hambrice was hired by Jack Daugherty, the owner

and a State Farm insured, to act as general contractor for the remodeling

of a Western Sizzlin’ restaurant in Magnolia, Arkansas. Daugherty later

reassumed some of the work, including roofing and electrical work, but

Hambrice continued to assist Daugherty on it. Hambrice estimated the

amount of roofing material required and ordered those materials for

Daugherty, checked the roofer’s work on two occasions, and suggested to

Daugherty that the perimeter neon lighting be removed after noticing that

it could be damaged by the shingle removal. When the lighting was removed,

the wires which supplied electricity to the lights were left exposed and

dangling along the side of the building.

Shortly before the fire in the restaurant occurred, customers

reported arcing and sparks from the exposed wires to two restaurant

managers, Brian Daugherty (Jack’s son) and Leigh Bass. On both occasions,

David Arrington, the restaurant’s regular electrician, was called to the

scene. Arrington told Bass that the sparking was a danger and that the

wires could be a fire hazard unless the circuit was left off. Power

continued to be applied to the circuit every night, however, until the fire

on September 18, 1991, which resulted in extensive damage to the

restaurant. 

State Farm paid Daugherty’s claim and hired a fire investigator and

an electrical engineer to look into the cause of the fire. They determined

that hanging wires from the removed neon lights were the cause, and the

fire investigator reported that “the neon tubes had been removed by Mr.

Milton Hambrice . . . and David Arrington, an electrical contractor” so

that new siding could be installed. A State Farm claims adjuster, Mike

Tucker, also interviewed Daugherty and his son, Brian. The Daughertys told

the adjustor that Hambrice was the general contractor on the remodeling
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job and that an employee under Hambrice’s supervision had removed the

lights. In its investigation State Farm did not uncover the fact that

Arrington had on two occasions warned Bass about the danger from the

exposed wires and told him to make sure that power was not applied to the

cables. 

After receiving this information, Tucker sent letters to Hambrice and

Arrington, which stated: “Our investigation indicates that you are

responsible for this damage and we are therefore looking to you for

reimbursement.” When Hambrice received the letter, he called Tucker and

denied responsibility for the fire. Arrington, who was also insured by

State Farm, called his agent and told him that he had not removed the neon

lights and had only been called to the restaurant about sparking of other

cables in a different location from the fire’s origin. Daugherty confirmed

the facts in Arrington’s statement, and State Farm did not pursue a claim

against Arrington. State Farm then forwarded the case file to Mike

Huckabay, an attorney who had extensive experience handling subrogation

claims, for recommendations on whether to file suit against Hambrice.

Huckabay responded that he “strongly recommended” suing Hambrice, and he

filed a complaint in February 1992, alleging that Hambrice’s negligence

caused the fire at the restaurant.

State Farm and its attorneys remained unaware of Arrington’s warnings

about the wires until May 1993, when a State Farm attorney interviewed

Bass. Bass told the attorney about Arrington’s visits and warnings, and

Arrington was deposed and affirmed that he had made strong warnings about

fire danger from the exposed wires. After discovering this evidence,

Huckabay recommended that State Farm voluntarily dismiss the lawsuit

because Daugherty would probably be found to be more than fifty percent at

fault, thus
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precluding recovery under Arkansas comparative negligence law. State Farm

dismissed the suit without prejudice in June 1993. 

Hambrice then sued State Farm for malicious prosecution, and after

a jury trial, judgment was entered against State Farm. On appeal, State

Farm argues that Hambrice did not establish its malicious prosecution

claim, that the district court made errors in admitting evidence and in the

jury instructions, that Hambrice did not prove compensatory or punitive

damages, and that excessive damages were awarded. 

In order to establish malicious prosecution under Arkansas law, a

plaintiff must show: (1) a proceeding brought or maintained by the

defendant against the plaintiff, (2) termination of the proceeding in favor

of the plaintiff, (3) absence of probable cause for the proceeding, (4)

malice on the part of the defendant, and (5) damages. Harold McLaughlin

Reliable Truck Brokers, Inc. v. Cox, 922 S.W.2d 327, 331 (Ark. 1996). A

jury verdict will be upheld if the evidence, viewed in the light most

favorable to the prevailing party, is sufficient for a reasonable jury to

have found for that party. Feibelman v. Worthen Nat’l Bank, N.A., 20 F.3d

835, 837 (8th Cir. 1994).

State Farm argues that Hambrice did not show that it lacked probable

cause when it filed the subrogation suit. Probable cause is “based upon

the existence of facts or credible information” that would cause a person

of ordinary caution to believe the defendant is liable. Hollingsworth v.

First Nat’l Bank & Trust Co., 846 S.W.2d 176, 178 (Ark. 1993). The facts

and circumstances surrounding the commencement and continuation of the suit

are considered in determining whether probable cause existed. Cordes v.

Outdoor Living Ctr., Inc., 781 S.W.2d 31, 33 (Ark. 1989). 
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Probable cause is a question of law only when “the facts relied upon to

create probable cause and the reasonable inferences to be drawn from the

facts are undisputed.” Cox v. McLaughlin, 867 S.W.2d 460, 464 (Ark. 1993).

The undisputed evidence at trial shows that at the time State Farm

sued Hambrice it had information from the fire investigation that the fire

had been caused by wires hanging from where neon lights had been removed

and that Hambrice had been involved in removing the lights, was responsible

for work which required the light removal, and had been working in the area

where the fire started. The fire investigator had reported that Hambrice

had been involved in removing the neon lights and that they had been

removed to accommodate the installation of new siding on the restaurant,

a job for which Hambrice was responsible. In interviews with Tucker, the

Daughertys had identified Hambrice as the general contractor responsible

for the remodeling of the restaurant and said that the neon lights were

removed under Hambrice’s supervision. Based on this undisputed evidence

concerning the facts State Farm had when deciding to sue Hambrice, it was

reasonable for State Farm to believe that Hambrice was responsible for the

fire, and it therefore did not lack probable cause.

Hambrice argues that this evidence does not establish probable cause

because if State Farm had conducted a more thorough investigation, it would

have discovered evidence of Daugherty’s negligence and the fact that

Hambrice was no longer the general contractor for the remodeling project.

Under Arkansas law, however, a plaintiff is not required to uncover all

facts relating to a claim before filing suit unless the plaintiff is aware

of contradictory facts giving rise to a duty to investigate further.

Kansas & Texas Coal Co. v. Galloway, 74 S.W. 521, 525 (Ark. 1903).
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In this case, there do not appear to be any facts giving rise to a

duty to investigate further, but even if there were, the additional

evidence which Hambrice claims State Farm should have uncovered does not

necessarily negate State Farm’s evidence of Hambrice’s negligence. State

Farm had evidence indicating that Hambrice was directly responsible for the

fire, including evidence that Hambrice was working in the area where the

fire started and was involved in removing the lights, and it did not need

to rely on a theory that Hambrice was liable as a general contractor.

Moreover, uncovering evidence of Daugherty’s negligence would not have

vitiated State Farm’s probable cause concerning Hambrice’s negligence.

State Farm could still have had a submissible case in the subrogation

action since under Arkansas law issues of comparative negligence are for

the jury to decide. Lockett v. International Paper Co., 871 F.2d 82, 84

(8th Cir. 1989). Hambrice thus did not show that State Farm lacked

probable cause to sue him for subrogation.

Even if probable cause had been lacking, Hambrice was also required

to make a separate showing of malice in order to establish his malicious

prosecution claim. Arkansas law defines malice as “any improper or

sinister motive for instituting the suit.” Hollingsworth, 846 S.W.2d at

178 (quoting Cordes, 781 S.W.2d at 33). Malice can sometimes be inferred

from a lack of probable cause when the surrounding circumstances indicate

a sinister motive. Cordes, 781 S.W.2d at 34; see, e.g., Farm Serv. Coop.,

Inc. v. Goshen Farms, Inc., 590 S.W.2d 861, 866 (Ark. 1979) (malice can be

inferred when a company repeatedly sues another while lacking probable

cause). Malice does not flow as a legal presumption from a lack of

probable cause, however. Cordes, 781 S.W.2d at 33; Rogers v. General Elec.

Co., 341 F. Supp. 971, 976 (W.D. Ark. 1972) (consider all facts disclosed

in determining
It is therefore unnecessary to discuss the arguments raised

1

by State Farm related to the jury instructions, evidentiary

rulings, and damages.

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whether malice can be inferred from a lack of probable cause) (quoting

Kable v. Clark, 204 S.W. 748, 750 (Ark. 1918)). 

Hambrice argues there is an inference of malice because of the lack

of probable cause and State Farm's practice of pursuing subrogation claims.

Undisputed evidence at trial showed that State Farm had credible facts on

which it based its decision to sue Hambrice for subrogation, however.

State Farm consulted a well-respected lawyer who had extensive experience

in subrogation litigation, presented to him the facts it had uncovered in

its investigation, and only sued after the lawyer strongly recommended it.

Moreover, once State Farm discovered evidence of Daugherty’s negligence,

it dismissed its action, even though under Arkansas law its case could

probably still have been submitted to a jury. See Lockett, 871 F.2d at 84.

These facts do not indicate any improper motive in bringing or pursuing the

subrogation claim, and Hambrice did not make a sufficient showing of malice

to withstand a motion for judgment as a matter of law.

Since Hambrice did not establish the elements of malicious

prosecution, State Farm was entitled to judgment as a matter of law. The 1

judgment of the district court is reversed, and the case is remanded with

instructions to enter judgment in favor of State Farm.
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A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.